Game-playing with economy has to stop

Whatever can be said about the effects of the government shutdown, they pale beside the effects of a debt default. Two knowledgeable observers have outlined just how bad a default would be. Quite simply, it is unthinkable.

If the ceiling on debt is not raised by Oct. 17, the federal government will be unable to service debts. This means those who hold government bonds may not be paid.

Even the possibility of default could cause sharp drops in household wealth, increases in the cost of borrowing, and a fall in private-sector confidence, the Treasury Department says in a report. Default could plunge the economy into its worst downturn since the Great Depression.

"Postponing a debt ceiling increase to the very last minute is exactly what our economy does not need," Treasury Secretary Jacob J. Law said. "Our nation has worked hard to recover from the 2008 financial crisis, and Congress must act now ? before that recovery is put in jeopardy."

Some experts think the president can raise the debt ceiling without congressional approval, citing the 14th Amendment's requirement to maintain "the validity of the public debt," but Press Secretary Jay Carney has said the White House has no interest in going that route.

Richard Bove, vice president of research at Rafferty Capital Markets, has some observations more specific - and more frightening - than those of Law. "The first thing you have to do is look at who holds the debt," Bove says of the $16.7 trillion of federal bonds outstanding.

"The first, biggest owner (of U.S. debt) is the Social Security fund, so you'd have all of these people who are receiving Social Security payments who now have to question whether they'll get their payments."

The second largest holder of federal debt is the Federal Reserve, which issues money. Look at your bills and you will see "Federal Reserve Note" across the top. The agency has "91 percent of its assets backed by U.S. government debt," Bove said.

If the federal government defaults, the value of those assets would fall and, Bove said, the net effect would be that "we have nothing of value backing the dollar." If the dollar falls in value, the price of everything people buy goes up.

And then there are investment funds. Bove says money market funds, which are used by virtually every person with a savings or investment account, are also "heavily loaded with Treasuries." So are most bond funds and so-called balanced funds. Default could cause those funds in turn to default on their obligations to their investors.

Banks hold more than $1 trillion in Treasury bonds and another trillion in government-backed mortgage securities. If the value of those instruments fall, banks could become insolvent.

The effects of default even could harm North Carolina's state government. By law, states cannot have credit ratings two levels above the federal level. North Carolina, with a AAA rating, already is one level above the federal government's AA+. If the federal rating slips, so does North Carolina's.

"It's discouraging," state Treasurer Janet Cowell said. "We could see higher interest rates to build schools and roads. And we would lose that Good Housekeeping seal of approval that affects business confidence."

Despite these dire predictions, there are extremists in Washington who would force the nation into default unless they can repeal a law passed by both houses of Congress, signed by the president and upheld by the Supreme Court.

A solution to this game of economic Russian roulette must be found. And it must be a solution that takes us off the current path of witnessing a manufactured crisis in Congress seemingly every month. Political interests have trumped the interests of the American people.

This has to end.

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Game-playing with economy has to stop

Whatever can be said about the effects of the government shutdown, they pale beside the effects of a debt default. Two knowledgeable observers have outlined just how bad a default would be. Quite